476. Cheatsheet

RI. The context and purpose of financial reporting

1. The context and purpose of financial reporting
Define financial reporting Process of recording, analysing, and summarising financial transactions for decision‑making
Types of business entity Sole trader, partnership, limited liability company (LLC)
Legal differences between entities Sole trader/partnership: unlimited liability
LLC: separate legal entity, limited liability
Advantages/disadvantages of entities Sole trader: simple but risky
Partnership: shared skills but joint liability
LLC: protection but regulation
Nature, principles, scope of financial reporting Produces useful financial info for external users under standards

2. Stakeholders’ needs
Identify the users of financial statements and state and differentiate between their information needs.
  • Investors returns & growth
  • Lenders repayment ability
  • Suppliers short-term liquidity
  • Employees stability & rewards
  • Government tax & compliance

3. Financial statements
Statement
of financial position		 Shows assets, liabilities, equity at a point in time
Statement
of profit or loss		 Shows performance over a period
Statement
of changes in equity		 Explains movements in equity
Statement
of cash flows		 Explains cash inflows and outflows
Asset Resources controlled from past events generating future benefits
Liability Present obligations from past events
Equity Residual interest: assets − liabilities
Income Increases in economic benefits
Expense Decreases in economic benefits

4. Regulatory framework
Purpose of regulatory system Ensure consistency, transparency, comparability
IFRS
Foundation		 Oversees standard-setting
International Accounting Standards Board
(IASB)		 Issues IFRS Accounting Standards
IFRS
Advisory Council		 Advises IASB
IFRS Interpretations Committee
(IFRIC)		 Interprets IFRS
International Sustainability Standards Board
(ISSB)		 Sustainability standards

5. Duties and responsibilities of those charged with governance
Define governance, in the context of the preparation of financial statements System directing and controlling preparation of accounts
Duties and responsibilities of directors in the preparation of the financial statements Prepare true and fair financial statements

RJ. Accounting principles, concepts and qualitative characteristics

1. Key principles and concepts of accounting
Going concern Assume business continues indefinitely
Accrual accounting Record income/expenses when earned/incurred
Materiality Ignore immaterial items
Offsetting No netting unless permitted
Consistency Same methods over time
Prudence Caution under uncertainty
Duality Every transaction has two effects
Business entity Business separate from owner
Historical cost Assets recorded at cost
Current value Assets recorded at fair value
Substance over form Economic reality > legal form

2. Qualitative characteristics of useful financial information
Relevance
Faithful representation
Comparability
Verifiability
Timeliness
Understandability

RK. The use of double-entry bookkeeping and accounting systems
Quotation
Sales order
Purchase order
Goods received note
Goods dispatched note
Customer (sales) invoice
Supplier (purchase) invoice
Supplier statement
Credit note
Debit note
Remittance advice
Receipt
Accounting equation

RL. Recording transactions and events

1. Sales and purchases

2. Cash

3. Inventories

4. Tangible non-current assets

5. Depreciation

6. Intangible non-current assets and amortisation

7. Accrued expenses (accruals), prepaid expenses (prepayments), accrued income, and deferred income

8. Receivables and payables

9. Provisions and contingencies

10. Capital structure and finance costs